Initial Public Offering Paper
Initial Public Offering
In this paper the questions regarding a businesses decision to go public will be addressed. Recent changes such as Sarbanes-Oxley governance ruling have had significant impact on the planning and execution of IPO's however, going public still remains the best route to additional capital for a company. We will also take a look at Google's successful rollout of their public offering. However first we need to look at what it takes for a company to go public. In the text of the Fundamentals of Corporate Finance the initial description of IPO succinctly captures the essence of need and subsequent process of an IPO.
Firms issue shares of common stock to the public when they need to
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This process is commonly called "underwriting"; the bank's role as the underwriter varies according to the method of underwriting agreed upon, but its primary function remains the same. In accordance with the Securities Act of 1933, the corporation will file a registration statement with the Securities and Exchange Commission (SEC). The registration statement must fully disclose all material information to the SEC, including a description of the corporation, detailed financial statements, biographical information on insiders, and the number of shares owned by each insider. After filing, the corporation must wait for the SEC to investigate the registration statement and approve of the full disclosure. During this period while the SEC investigates the corporation's filings, the underwriter will try to increase demand for the corporation's stock. Many investment banks will print "tombstone" advertisements that offer "bare-bones" information to prospective investors. The underwriter will also issue a preliminary prospectus, or "red herring", to potential investors. These red herrings include much of the information contained in the registration statement, but are incomplete and subject to change.